Playdom Joins the Magic Kingdom for $563 Million

Inc. contributing editor Courtney Rubin was for five years a London-based staff writer for People magazine. Rubin, a former senior writer for Washingtonian magazine, has written for the New York Times magazine, Time, Marie Claire, and other publications. She is the author of The Weight-Loss Diaries.

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Playdom's "Mobsters," where players try to rise through the crime ranks, is the No. 1 game on MySpace.

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Zip-a-Dee-Doo-Dah. It's a wonderful day for start-up Playdom. The two-and-a-half-year-old company has been acquired by Walt Disney for $563.2 million, making it the richest deal ever in the social gaming market.

The Mountain View, Calif.-based Playdom makes games for social networks such as Facebook and MySpace. It's the third-largest player in the social gaming space, attracting a user base of 42 million active players each month -- compared to market leader Zynga's 235 million. (Zynga is the maker of "FarmVille.") Playdom's "Mobsters," where players try to rise through the crime ranks, is the No. 1 game on MySpace. Other popular games include the city-building game "Social City," and the vampire game "Bloodlines."

Playdom's website brags: "We may be the fastest growing social gaming company on the planet."

Besides the $563.2 million in mostly cash, Playdom's shareholders could pick up another $200 million if the company meets performance goals, making the deal the biggest one yet in the fledgling yet fast-growing social gaming market. Millions of people play Playdom's games for free, but the company makes money through the sale of ads and virtual goods.

Disney – which earlier this month strengthened its burgeoning games business by acquiring iPhone and iPad app-maker Tapulous -- already is an investor in Playdom through its Steamboat Ventures fund. Privately-held Playdom has raised a total of $76 million, and its most recent valuation was about $345 million.

'We believed we could accomplish more with Disney than on our own," Playdom's chief financial officer Christa Quarles told the Financial Times. 'We're already looking at the Disney catalogue and how we can bring those characters into our games.'

Steve Wadsworth, president of the Disney Interactive Media Group, said: "There's a huge growth opportunity happening in the marketplace that we weren't really playing in in any significant way. We believe strongly that social gaming is a critical component of interactive entertainment and we feel it is critical for us to have a presence there."

Playdom, formerly known as YouPlus, came out of stealth mode in March 2009 to reveal itself as the developer of the No. 1 game on MySpace. Then just 18 months old, the company already claimed to be profitable, had 37 employees, and had raised no money. It was founded by Daniel Yue (a semi-pro poker player who previously worked at ad-tech firm Adify), Rick Thompson (a co-founder of Adify) and former Google employees Chris Wang and Ling Xiao.

The company's sale of virtual goods took off partially thanks to user feedback. "We used to have nothing but cars in our racing game," Yue said in 2009. "Then one day a user e-mailed us offering to pay us $100 if we put a picture of his truck in the game. So we put a truck in the game and a lot of people bought it."

Playdom rival Zynga in November raised an additional $15.1 million, bringing its total funding to more than $54 million. Meanwhile, Electronic Arts swallowed Playfish in a deal worth $400 million in October.